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Tuesday, November 1, 2011

Market Thought... Greece fishiness

Something just doesn't smell right. The Greek referendum has a real fishiness smell to it.  After two years of the Greek drama unfolding, and the EU sovereign debt collapsing, all of a sudden the Greek political elite see fit to put the austerity to a popular vote.  What makes this more ridiculous is that 20 or so years ago, Greece did not put the entrance to the Euro to a popular vote.

Basically, we have a situation where a people will be allowed to reject the heavy austerity, extreme unemployment and a system they never agreed to in the first place. (It does not take a genius to figure out the most likely out come here.)

The above is some serious uncertainty.  But now add in the fact that money was not allocated for the EFSF leverage, and spreads visibly blowing out from the EFSF bonds for all the market players to see, puts the bank run back on the table.

The fall out from a popular vote is obvious. So why leak this now?

When I try to think of this logically, it looks like Greece will be taken out of the Euro.  They will stay in the European Commission, but not in the Euro. Just like England.  But this adds such an uncertainty that a domino effect can happen to other countries.

This is truly fascinating.

Outside the 'market shock' news, and on the economic front, we seem to be okay.  Goldman's retail numbers came in much better than expected at +0.7 vs -0.8, and +3%yr-yr, and China's PMI continues to point to a soft landing.

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